Stock Exchange faces two-year low

The London Stock Exchange was a sea of red today as traders faced the prospect of a two-year low in the wake of further bad news from the US and Japanese economies overnight.

The FTSE-100 Index was down a massive 68.5 points after just 30 minutes of trading at 5757.7, with only five stocks among the top 100 actually showing any growth at all.

And economists predicted the situation could get even worse, with yet more falls predicted before the close this afternoon bringing it down to levels not seen since February 1999.

Investors were reacting to further widespread losses in the US, not only on the tech-dominated Nasdaq exchange but on the Dow Jones Industrial Average, which had held up relatively well against the recent negative sentiment.

Last night, it finally buckled and lost 4% in one session, ending 436.37 points lower at 10208.25, after a further profit warning from the technology sector finally hit home.

The warning came from mobile phone giant Ericsson, which said its profits in the first quarter would be hit by the global slow-down.

The Nasdaq lost a further 6.3%, closing 129.40 down at 1923.38.

Japanese markets had their own problems, falling sharply with concern high over how the government will deal with weaknesses in the world's largest economy.

Grim news from finance minister Kiichi Miyazawa that the economy was in a state of deflation helped push Japan's benchmark 225-issue Nikkei Stock Average to a 16-year low, closing down 315.67 points at 11,819.70.

In London, tech stocks peppered the Footsie fallers board, and Neil Parker, market analyst at the Royal Bank of Scotland, said the Footsie could yet lose another "100 to 150 points" before any sign of recovery is evident.

"The big fall in the Dow has been the major concern, but it was always going to happen," he said.

"The Footsie could touch 5600 and I think at that stage it will be a case of looking to pick the positive stocks that are going to support a rally."

Mr Parker said cyclical stocks such as retailers and construction firms may be a good bet, particularly as consumer spending would probably remain at current levels.

Jeremy Hawkins, chief economist Europe at the Bank of America, said the bear run could continue until next Tuesday's meeting of the Federal Reserve in the US.

The meeting is expected to signal a further cut in interest rates in the US, which could give some much needed confidence to investors.